Activision Reports Record Third Quarter and Nine Month Fiscal 2005 Results

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1 Activision Reports Record Third Quarter and Nine Month Fiscal 2005 Results - Q3 Net Revenues Increase 34% Year Over Year - - Net Revenues for Nine Months Grow 53% - - Company Increases Net Revenue and E.P.S. Outlook for FY Company Expects Net Revenue, E.P.S. and Operating Margin Growth for FY SANTA MONICA, Calif., Feb 07, 2005 /PRNewswire-FirstCall via COMTEX/ -- Activision, Inc. (Nasdaq: ATVI) today announced record financial results for the third quarter and nine months ended December 31, Net revenues for the third quarter were $680.1 million or 34% higher, as compared to $508.5 million for the third quarter of fiscal year Net income for the third quarter rose to $97.3 million, a 26% increase, compared with net income of $77.0 million for the previous fiscal third quarter. Diluted earnings per share grew 19% to $0.63 per diluted share, compared to $0.53 per diluted share reported for the prior fiscal third quarter. For the nine-month period ended December 31, 2004, the company announced record net revenues of $1.2 billion, an increase of 53%, as compared to net revenues of $784.8 million reported for the nine-month period last fiscal year. The company also announced record earnings per diluted share for the nine-month period of $0.87, an increase of 78%, as compared to earnings per diluted share of $0.49 for the same period last fiscal year. Activision increased its net revenues and earnings per diluted share outlook for fiscal year 2005 to $1.352 billion in net revenues and earnings per diluted share of $0.87 from the company's prior outlook of $1.265 billion in net revenues and diluted earnings per share of $0.81. The company's revised outlook represents a 43% increase in net revenues and a 61% increase in earnings per diluted share year over year. The company also increased its outlook for the fourth quarter of fiscal year 2005 to $150 million in net revenues from $128 million, despite moving id Software's DOOM 3 for the Xbox and the DOOM 3 PC expansion pack to fiscal For the fourth quarter, the company expects earnings per diluted share of $0.01. During the quarter, Activision plans to release Spider-Man 2 (TM) and Tony Hawk's Underground 2 Remix for the PSP simultaneously with the North American release of the new handheld platform, as well as, three titles from LucasArts that will be released in Europe -- Star Wars(R) Knights of the Old Republic(R) II: The Sith Lords(TM), Mercenaries(TM) and Star Wars Republic Commando(TM). In addition, Shrek 2(TM) will be first of the company's fiscal 2005 games to enter Sony Computer Entertainment America's "Greatest Hits," Microsoft's "Platinum Family Hits" and Nintendo of America's "Player's Choice" programs. Robert Kotick, Chairman and CEO of Activision, Inc., commented, "For the first nine months of fiscal year 2005, net revenues have already exceeded net revenues in fiscal 2004, resulting in 13 consecutive years of revenue growth for Activision. We ended the quarter with more than $713 million in cash and short term investments and for the trailing 12 months, our free cash flow was $107 million and return on invested capital was 46%. Our results to date were driven by the release of over 10 one million-unit selling games. Four of these titles sold in excess of two million units. These proven franchises should allow us to continue improving our market position domestically and internationally." Kotick continued, "As we look toward the future, we are very excited about the opportunities ahead. The combination of our product slate, the emerging opportunities created by new hardware technologies and the ever increasing installed base of current console hardware should enable us to continue expanding our net revenues, earnings and operating margin. In fiscal 2006, we will release the strongest game slate in our history which includes new versions of our top-selling fiscal 2005 franchises -- Tony Hawk, Spider-Man, Shrek, Call of Duty, DOOM, and X-Men, as well as games based on True Crime, Fantastic Four, Madagascar, Quake, The Movies, and an original new property from Neversoft, the development team behind the Tony Hawk series." Business Highlights Activision's third quarter results were driven by solid performance of its titles across all platforms worldwide. During the quarter, the company had five top 10-best selling games in the U.S., according to NPD -- Call of Duty: Finest Hour(TM), which has established itself as a new console franchise for the company, Tony Hawk's Underground 2, DOOM 3(TM), Rome: Total War (TM) and Spider-Man 2 for the Nintendo DS.

2 Between October and December, Activision released five new games: Tony Hawk's Underground 2, an all-new Tony Hawk experience for PlayStation(R) 2 computer entertainment system, Xbox(R) video game system from Microsoft, Nintendo(R) Game Cube, Nintendo Game Boy(R) Advance and PC; Call of Duty: Finest Hour, a World War II first-person action game for the PlayStation 2 computer entertainment system, Xbox video game system from Microsoft and Nintendo Game Cube; Lemony Snicket's: A Series of Unfortunate Events(TM) for the PlayStation 2 computer entertainment system, Xbox video game system from Microsoft, Nintendo Game Cube, Nintendo Game Boy Advance and PC; Vampire(R): The Masquerade Bloodlines(TM) for the PC and Spider-Man 2 for the Nintendo DS. Other business highlights include: * On January 20, 2005, Activision announced that the company further strengthened its next-generation development capabilities through the acquisition of game developer Vicarious Visions, the creative studio behind the #1 best-selling third-party Nintendo(R) DS title, Spider-Man 2. Vicarious Visions' proven proprietary Alchemy(TM) middleware technology and tools will be combined with Activision's next-generation tools and libraries to further enhance the company's overall development efforts. * For calendar 2004, Activision had a number of top-selling titles: * Spider-Man 2 was the #1 movie-based game in the U.S., according to NPD Funworld. For the calendar year, the Spider-Man franchise sold more than seven million units worldwide. Spider-Man 2 for the Nintendo DS was the #1 best-selling third-party title for the platform in the U.S. for the calendar year, according to NPD Funworld. * Tony Hawk's Underground 2 was the #9 best-selling title in the U.S., according to NPD Funworld. The Tony Hawk brand sold more than six million units worldwide in the calendar year. * The Call of Duty franchise sold more than four and a half million units worldwide in the calendar year and was the best-selling game franchise based on a new intellectual property. * Shrek 2 was the #1 best-selling children's video game in the U.S., according to NPD Funworld. The Shrek 2 franchise sold more than four million units worldwide in the calendar year. * According to NPD Techworld, Activision was the fastest growing top-10 U.S. PC publisher for calendar The company had a 10% PC market share, the highest in its history, and was the only publisher to have three top-10 games for the year -- DOOM 3, Call of Duty(TM) and Rome: Total War. Company Outlook Activision also provided its outlook for fiscal year 2006, which begins in April 2005, of $1.43 billion in net revenues and earnings per diluted share of $0.91. For the first quarter of fiscal year 2006, the company expects net revenues of $215 million and earnings per diluted share of $0.02. Diluted earnings per share does not include the impact of adopting FASB 123(R), which relates to the expensing of stock options and other share-based payments. Non-GAAP Financial Measures The company's press release includes the non-gaap financial measures of "free cash flow" and "return on invested capital." A reconciliation of these non-gaap financial measures to the most comparable GAAP financial measure appears at the end of this press release. Conference Call Today at 4:30 p.m. EDT, Activision's management will host a conference call and Webcast to discuss its third quarter fiscal

3 year 2005 results and outlook. The company welcomes all members of the financial and media communities to visit the "Investor Relations" area of to listen to the conference call via live Webcast or to listen to the call live by dialing into (913) in the U.S. About Activision Headquartered in Santa Monica, California, Activision, Inc. is a leading worldwide developer, publisher and distributor of interactive entertainment and leisure products. Founded in 1979, Activision posted net revenues of $948 million for the fiscal year ended March 31, Activision maintains operations in the U.S., Canada, the United Kingdom, France, Germany, Italy, Japan, Australia, Scandinavia, Spain and the Netherlands. More information about Activision and its products can be found on the company's World Wide Web site, which is located at Note: The statements made in this press release that are not historical facts are "forward-looking" statements. These forwardlooking statements are based on current expectations and assumptions that are subject to risks and uncertainties. The company cautions readers of this press release that a number of important factors could cause Activision's actual future results to differ materially from those expressed in any such forward-looking statements. Such factors include, without limitation, product delays, retail acceptance of our products, industry competition, rapid changes in technology and industry standards, protection of proprietary rights, maintenance of relationships with key personnel, vendors and third-party developers, international economic and political conditions, integration of recently acquired subsidiaries and identification of suitable future acquisition opportunities. These important factors and other factors that potentially could affect the company's financial results are described in our filings with the Securities and Exchange Commission, including the company's most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Readers of this press release are referred to such filings. The company may change its intention, belief or expectation, at any time and without notice, based upon any changes in such factors, in the company's assumptions or otherwise. The company undertakes no obligation to release publicly any revisions to its forward- looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. (Tables to Follow) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except earnings per share data) Quarter ended Nine months ended December 31, December 31, Net revenues $680,094 $508,511 $1,201,996 $784,759 Costs and expenses: Cost of sales - product costs 316, , , ,302 Cost of sales - software royalties and amortization 58,200 23, ,846 50,575 Cost of sales - intellectual property licenses 22,598 9,464 57,797 27,008 Product development 25,068 50,354 66,054 79,828 Sales and marketing 105,248 58, , ,025 General and administrative 15,407 14,248 44,854 35,847 Total operating expenses 543, ,550 1,014, ,585 Operating income 137, , , ,174 Investment income, net 3,197 1,464 7,954 4,125 Income before provision for income taxes 140, , , ,299 Provision for income taxes 43,014 41,444 60,662 38,248 Net income $97,262 $76,981 $134,762 $71,051

4 Basic earnings per share $0.70 $0.58 $0.97 $0.54 Weighted average common shares outstanding 139, , , ,488 Diluted earnings per share $0.63 $0.53 $0.87 $0.49 Weighted average common shares outstanding assuming dilution 155, , , ,679 Share and earnings per share data have been restated to reflect our three-for-two stock split for shareholders of record as of February 23, 2004, paid March 15, CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) December 31, March 31, ASSETS Current assets: Cash, cash equivalents and short-term investments $713,180 $587,649 Accounts receivable, net 344,894 62,577 Inventories 41,656 26,427 Software development 61,550 58,320 Intellectual property licenses 19,908 32,115 Deferred income taxes 13,689 26,127 Other current assets 17,424 18,660 Total current assets 1,212, ,875 Software development 13,384 28,386 Intellectual property licenses 11,624 16,380 Property and equipment, net 26,798 25,539 Deferred income taxes -- 9,064 Other assets 2,530 1,080 Goodwill 77,992 76,493 Total assets $1,344,629 $968,817 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $156,376 $72,874 Accrued expenses 155,057 63,205 Total current liabilities 311, ,079 Deferred income taxes 12, Total liabilities 324, ,079 Shareholders' equity: Common stock Additional paid-in capital 803, ,626 Retained earnings 343, ,279 Treasury stock (144,128) (144,128) Accumulated other comprehensive income 17,818 9,961 Total shareholders' equity 1,020, ,738 Total liabilities

5 and shareholders' equity $1,344,629 $968,817 FINANCIAL INFORMATION For the Quarter and Nine Months Ended December 31, 2004 and 2003 (Amounts in thousands) Quarter Ended December 31, December 31, Percent Increase % of % of (Decrease) Amount Total Amount Total Geographic Revenue Mix United States $344,342 51% $252,114 50% 37% International 335,752 49% 256,397 50% 31% Total net revenues $680, % $508, % 34% Activity/Platform Mix Publishing: Console $382,400 75% $304,996 80% 25% Hand-held 63,243 12% 13,367 3% 373% PC 68,410 13% 64,558 17% 6% Total publishing $514,053 76% $382,921 75% 34% Distribution: Console $134,503 81% $102,979 82% 31% Hand-held 7,923 5% 6,917 6% 15% PC 23,615 14% 15,694 12% 50% Total distribution $166,041 24% $125,590 25% 32% Total net revenues $680, % $508, % 34% Nine Months Ended December 31, December 31, Percent Increase % of % of (Decrease) Amount Total Amount Total Geographic Revenue Mix United States $627,238 52% $381,303 49% 64% International 574,758 48% 403,456 51% 42% Total net revenues $1,201, % $784, % 53% Activity/Platform Mix Publishing: Console $647,069 69% $439,499 77% 47% Hand-held 105,342 11% 22,150 4% 376% PC 189,689 20% 107,473 19% 76% Total publishing $942,100 78% $569,122 73% 66% Distribution: Console $203,626 78% $171,509 79% 19% Hand-held 15,134 6% 14,559 7% 4% PC 41,136 16% 29,569 14% 39%

6 Total distribution $259,896 22% $215,637 27% 21% Total net revenues $1,201, % $784, % 53% FINANCIAL INFORMATION For the Quarter and Nine Months Ended December 31, 2004 and 2003 Publishing Net Revenues Nine Nine Quarter Quarter Months Months Ended Ended Ended Ended Dec. 31, Dec. 31, Dec. 31, Dec. 31, PC 13% 17% 20% 19% Console 75% 80% 69% 77% PlayStation 2 44% 48% 41% 44% Microsoft Xbox 21% 20% 18% 22% Nintendo GameCube 10% 10% 10% 8% PlayStation 0% 2% 0% 3% Hand-held 12% 3% 11% 4% Game Boy Advance 10% 3% 10% 4% Nintendo Dual Screen 2% 0% 1% 0% Total publishing net revenues 100% 100% 100% 100% Non-GAAP Disclosures Free Cash Flow (In thousands) Three Three Three Three Months Months Months Months Ended Ended Ended Ended 12/31/04 9/30/04 6/30/04 3/31/04 Net Cash Provided by (Used In) Operating Activities $85,668 $62,846 $(52,136) $21,069 Less: Capital Expenditures $(3,587) $(2,562) $(1,881) $(2,521) Free Cash Flow $82,081 $60,284 $(54,017) $18,548 Trailing Twelve Month Free Cash Flow $106,896 $121,998 $30,779 $55,427 Non-GAAP Disclosures Return on Invested Capital (In thousands) Three Three Three Three Months Months Months Months Ended Ended Ended Ended 12/31/04 9/30/04 6/30/04 3/31/04

7 NET OPERATING PROFIT AFTER TAXES Net income $97,262 $25,543 $11,957 $6,664 Less: Investment income (3,197) (2,645) (2,112) (2,051) Tax effect on Investment income (B) Net Operating Profit After Taxes $95,056 $23,744 $10,542 $5,290 Trailing Twelve Month Net Operating Profit After Taxes $134,632 $115,576 $80,826 $73,630 INVESTED CAPITAL Total assets (A) $1,344,629 $1,104,169 $985,841 $968,817 Less: Cash and short term investments (A) 713, , , ,649 Current liabilities (A) 311, , , ,079 Invested capital $320,016 $281,740 $314,603 $245,089 Trailing Twelve Month Invested capital (A) 290, , , ,330 Return on Invested Capital 30% 8% 3% 2% Trailing Twelve Month Return on Invested Capital 46% 42% 30% 30% (A) Amounts for the trailing twelve months represent averages of the previous four fiscal quarters (B) Tax effect represents investment income multiplied by our effective tax rate. SOURCE Activision, Inc. Bill Chardavoyne, Chief Financial Officer, , or Kristin Mulvihill Southey, Vice President, Investor Relations, , or Maryanne Lataif, Vice President, Corporate Communications, , all of Activision, Inc. Copyright (C) 2005 PR Newswire. All rights reserved. News Provided by COMTEX